Pulse check: Measuring underlying inflation and its drivers

Luis Uzeda

No 2025-29, Staff Analytical Notes from Bank of Canada

Abstract: This note presents PULSE, a new measure of underlying inflation in Canada based on a dynamic factor model estimated on disaggregated inflation data. PULSE captures the persistent component of inflation and decomposes it into broad-based and sector-specific inflationary pressures. We find that broad-based inflationary pressures account for most underlying inflation, while sector-specific factors—particularly shelter—have become more inflationary since 2021. Unlike CPI-common, PULSE is less prone to large historical revisions and maintains a strong correlation with economic slack.

Keywords: Econometric and statistical methods; Inflation and prices; Monetary policy transmission (search for similar items in EconPapers)
JEL-codes: C5 C55 E31 E52 (search for similar items in EconPapers)
Date: 2025-12
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocsan:25-29

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